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LONDON, Aug 24 (IFR) - Distressed Kuwaiti investment firms
might increasingly resort to debt-for-equity swaps and principal
reductions to cut their debt load as they continue to struggle
with high levels of leverage and depressed real estate and stock
valuations.Hit hard by the financial crisis of 2008, most of Kuwait's
investment firms have traditionally resorted to maturity
extensions to avoid default. "Maturity extension has been the
modus operandi across the GCC and Kuwait is no different," said
Ahmad Alanani, senior executive officer with Exotix in Dubai.
Eager to avoid expensive writedowns on their books, creditor
banks have generally accommodated the investment houses'
requests to delay . . . payments, hoping in a
quick turnaround for the sector."Creditors... were hoping for asset values to recover enough
to get repaid fully," noted Khalid Howladar, senior credit
officer at Moody's Investor Service. "Given that prices
have still not really recovered, an increase in debt-for-equity
swaps and principal reductions may now be more likely."In fact, while maturity extensions have allowed many Kuwaiti
companies the extra breathing room they needed to stay in
business, they have done nothing to reduce the excessive
leverage these firms had accumulated during the boom years of
their asset-buying spree.A USD433m debt-for-equity swap to be discussed in a September
2 meeting by shareholders of Global Investment House, a Kuwaiti
investment firm undergoing its second restructuring in three
years, is expected to pique the interest of bankers and issuers
alike."This move is very, very rare in the region. If they manage
to do it, people are going to look at these kind of deals more
closely," said an origination banker."Extend & pretend. This was the model applied with Global
Investment House in 2009 when the company restructured the first
time," said Exotix's Alanani. "They have finally realised that a
reduction in the debt load was the only way for them to survive
as a going concern."Some point out that abundant liquidity in the Gulf could
allow distressed firms to find alternative sources of funding.
"Local banks have been very supportive," noted the origination
banker.Another Kuwaiti investment company, National Industries
Group, is a case in point. The company decided last week to drop
a four-year extension request on the repayment of its maturing
sukuk, after securing a three-year syndicated murabaha facility
locally. "At the end of the day, it very much depends on the
name," said a source close to the transaction. "But you can't
prioritise shareholders over bondholders. What are they going to
get in return?"Other alternatives, seen in the larger Dubai restructurings,
include maintaining principal balances on the outstanding debt,
while reducing coupon payments to below market prices."Depending on the underlying business this may just further
delay recognition of the problem or possibly provide time for
recovery," noted Moody's Howladar.It seems, however, that many of these firms have been
kicking the can down the road for too long. "I believe we are
going to see more and more principal reductions and
debt-for-equity swaps in private sector restructurings," said
Alanani, "and that in my view is a positive."
(Reporting By Davide Scigliuzzo, Editing by Helene Durand,
Chris Spink)